The implementation of controlling functions in management

in the context of nonlinear development of economic systems

Tatiana A. Golovina, Ph.D., Associate Professor

State University – Academic Research and Production Complex

Economics and Management Department

Orel, Russia

e-mail: golovina_t78@mail.ru

The intense structural changes and the continuously increasing complexity of the economic objects and their environments call for the creation of a fundamentally new controlling function in management.

In the modern world, strategic planning includes management of changes within the enterprise and the external environment, and searching for innovative flexible methods of decision-making in situations when the manager does not have the complete information about the current situation.Because the access to full information is often limited, the contemporary management turns to a process of controlling. Implementation of controlling functions in management helps, in a real-time mode, to get the following results:

- to foresee the opportunities for development and to prevent the threats;

- and to be informed about and control the various internal and external factors.

One of the main issues that the modern strategic management deals with is finding the ways for the enterprises to adapt to a constantly changing nonlinear economic environment. The additional functions of the management include finding the effective methods that could influence and change the external environment to the benefit of the internal goals.

These new controlling functions of management are implemented because the company’s strategic planning and development is done in the context of nonlinear economic systems, where the decisions are made in conditions of absence of complete information, which is needed for the identification and model description of the analyzed system.

In the context of nonlinear development, the economic systems management has to be based on the following principles:

- Careful examination of the current state and development of the forming markets, the individual enterprises, and the state government interests;

- Creation of appropriate conditions for the economic systems structure for it to be maximally adapted to the internal and external factors;

- Active promotion of the industrial interests of the enterprises.

For the open nonlinear economic systems it is crucial to keep balance between the information coming from the external and created in the internal environments. The economic system is able to keep the informational balance through its own special acts that either absorb the incoming information or discharge of it. If imbalance occurs, the open system reacts to it by either creating functional connections or by destroying them. The system is self-organized as a result of local orderliness.

Picture 1 outlines the principles of management of the economic systems in nonlinear economic environment.

It is important to study controlling functions of management because of the following factors:

- The functions of controlling in management change rapidly due to intensive structural and technological progress that has been happening in the modern times;

- The priorities of the academic research on controlling are evolving and lead to changes in the objectives of research, the initial hypotheses, and all other factors of research as different hierarchal levels;

- The incommensurability of data is one of the biggest obstacles for modern day researches. It is important to come up with new data gathering and comparison techniques;

- The research methods and standards are rapidly changing;

- The access to data is limited due to an inappropriate development of informational infrastructure and dataware systems;

Picture 1 – Properties and Principles of Economic Systems Management for Nonlinear Type of Development

- Corporate reporting is limited due to the failure of the companies to disclose full and complete information;

- The quality of the automatic data analysis has been reduced because of the incommensurability of the many qualitative and quantitative factors that need to be analyzed;

- The accuracy and adequacy of the calculations is reduced due to neglect of important factors and implementation of additional auxiliary variables.

The implementation of controlling functions in the context of nonlinear development of the economic systems is based on stochastic approximation of random sets of system parameters. These parameters are used to describe the changes in the characteristics of the system through the iterative procedures for linking the object model descriptions and the statistical data in the following situations:

1) in regression models with a moving structure in which the structural coefficients are represented by the functions of time or factors, or both. This means that new econometric models based on principles of self-organization need to be formulated and constructed [3];

2) in production functions with variable structural parameters which are capable in accounting the significant variations of factor effects and the effects of technological change;

3) in solving the problems about the dynamic optimization of controlling methods where the structural system of equations is brought to a normal form. These kinds of problems give the opportunity to express the exogenous variables through the endogenous variables, find the equilibrium state for the economic system, and create a long-haul development trajectory. Controlling functions provide a smooth transition from a deviated state to a stable state; they act like an exit to the turnpike for management. Controlling functions organize the system parameters and bring the system to its best condition.

Controlling in management increases the adaptive capacity of the enterprises and reduces the expenditures as the enterprise comes to stability. In the context of nonlinear development of the economic systems, the implementation of controlling functions fulfills two managerial purposes – the management does not only examine the system, but also determines its most effective condition.

The implementation of controlling functions in management in the context of nonlinear development should not only be limited to the construction of a training model of a real system, since it is very difficult to formally describe all the strategic planning procedures and all the enterprise development options, especially in the environment that is developing nonlinearly. Controlling should also deal with choosing the special methods of strategic management which are then implemented in the interactive procedures, such as creation of scenarios for the future enterprise development. The function of controlling also means coordinating the strategic decisions in various aspects of a company’s industrial and economic activities.

The use of controlling functions at enterprises leads to reconciliation of properties and purposes of the sub-systems, connects the elements of the sub-systems to the integrated system, and accounts for the object changes and system-wide disturbances.

One of the features of a controlling function, the iterative matching, uses the training models and managerial impact to assess the decisions that were made at the enterprise. Qualitative assessment of internal capacities and of the functional external environment of the enterprise directly depends on the adequate understanding of the dynamical macroeconomic processes and the internal corporate changes.

The use of controlling functions can be implemented in the following: the introduction of new managerial technologies, the continued development of the managerial system and the corporate culture, and in the use of self-organization practices.

One of the functions of controlling is collecting and analyzing large amounts of vague, non-formatted, raw information. This data analysis, however, plays a great role in keeping homeostasis, or the constancy, of the internal environment. Data gathering, analysis, and the consequent actions result in the minimization of losses of profit and of fixed production costs. It facilitates the new opportunities for growth and development, and helps the enterprise to be better adapted to any possible changes under the conditions of uncertainty. The use of controlling functions has a synergetic effect which is expressed in qualitative and quantitative changes at the enterprise: the internal structure, connections, and behavior are being transformed in accordance with the challenges coming from the external environment.

Controlling functions in strategic management is a very complex issue, understanding and implementing which is crucial to successful management in contemporary economic environment. The various aspects of controlling include: methodological principles of controlling functions in strategic management, methods of problem solving, complex mathematical models and economical indicators, and strategic decision-making tools. Applying all of these functions is necessary for successful strategic planning and future development of the enterprises in the context of complex nonlinear economic environment.

References

1. Ajrapetjan M. S. Conservative modernization as process of adaptation to cyclic fluctuations in economy. A series «Reports МАОН» - М: ZMI RAN, 2010.

2. Katkalo V. S. Initial concepts of strategic management and their modern estimation//The Russian magazine of management. – 2003. - №1. – Т.1

3. Levitsky E. M. Adaptation in modeling of economic systems. – Novosibirsk: Science, 1977.